Basic Information of Executive Decision Making at General Motors
Author: David A. Garvin, Lynne C. LevesquePublisher: HBR
Case Number: 305026
Publication Date: Dec 21, 2004
Revision Date: Feb 14, 2006
Course Category: Management
Case Summary of Executive Decision Making at General Motors
“How does an organization achieve consistency, or fit, between the environment and its strategy, structure, and decision-making processes? The GM case will allow us to discuss the question of how to go about aligning an organization with a dynamic environment, and in so doing, ensuring that it is also self-adapting. A last important theme of this case is the role of the CEO.”Wagoner (Chairman and CEO of GM):
“How to balance the global effective system and local focus expertise? The matrix organization is the key factor. It replaced the historic multi-divisional structure and its proliferation of vehicles, architectures, and processes that had almost cause GM’s demise”
~Case Context~
Alfred Sloan’s GM: Revving up (1920~1956)
• In 1908: Billy Durant
Created the first automotive conglomerate and first vertically integrated company in the industry.
− Challenge: Poor management decision because internal competition and duplication were tolerated and often encouraged.
• In 1918: Alfred Sloan
Reorganized GM’s structure and management processes to be in line with its strategies.
− Strategy: Three major strategies included an ingenuous marketing policy, a commitment to innovation, and international diversification.
− Structure: Multi-divisional structure called “decentralization with coordinated control.”
− Policy and Decision-Making Processes: Coordinated control in the decentralized organization came from Management Committee and the Policy Groups.
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Management Committee:
Ultimately responsibility for decisions around resource allocation, spending authorities, and planning for GM’s future resided until 1992.
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Policy Groups:
Met monthly to set standards and policies to provide recommendations to Management Committee, while they had no funding authority.
− Result: Ranked #1 of Fortune 500 (in 1955) in both sales and net profits.
− Challenges: Innovation structure is unchanged until 1990; independence and decentralization may not be able to respond the major changes quickly.
Coasting Toward Collision (1960s-1990s)
Increased competition and oil crisis in 1970s tested GM’s prevailing strategy, structure, and senior management process. However, GM’s internal focus and its ‘not invented here’ attitude didn’t help.
− Strategy: With focus on market share, the divisions compete with each other. Top managers became more focused on cost than revenue.
− Structure: The effectiveness of decentralized organization began to break down as operational complexity and internal competition increased. Each division and global region has its own functions and lacked of the economics of scale.
− Policy and Decision-Making Processes: Slowed down decision-making by adding a new layer of required review, and managers focused on lining up needed votes before meetings. The staff kept executives from knowing what going on with customers and employees.
− Result: GM was branded a “dinosaur” by the early 1990.
Getting Back on a Common Track (1992 and Beyond)
In 1992, Jack Smith was in charge of CEO and Chairman. He eliminated Policy Group, abolished the two vehicle groups, and replaced the Management Committee with President’s Council.
− Strategy: Reduced overlapping product lines, developing common systems for product development, focused on speeding up to decision-making process, and eliminating the interdivisional competition.
− Structure:
1. In North America, GM consolidated automotive engineering, manufacturing, and purchasing into one
2. In 1998, GM established a single Automotive Strategy Board (ASB) chaired by Wagoner.
3. Also in 1998, GM was reorganized into matrix organization, or ‘basketweave’, including four Region Presidents and twelve Global Process Leaders covering critical functions.
− Policy and Decision-Making Processes:
1. Regional decisions: Responsible for developing, reviewing, and approving regional operating budgets and business plans.
2. Functional decisions: Global Process Leaders were responsible for their functions across the entire company.
3. Balancing the matrix: The regions were initially given the dominant role in the matrix, with budgeting and financial reporting accountabilities. Functional staffs had dual reporting system.
The Automotive Strategy Board (ASB): The Matrix in Action
In the new organization, the regional strategy boards and the global process councils came together at ASB, which, along with GM’s Board of Directors,
− Role of ASB:
1. Governance and oversight: ASB made decisions about financial commitments and resource allocation.
2. Policy setting.
3. Alignment: The ASB played additional roles that promoted organizational alignment, coordination, and communication.
4. Strategic decision-making: Strategic issues, such as acquisitions, growth strategies, and resources allocations were decided through ASB.
− Support the Matrix
1. Doublehatting: Asked the top managers to work both sides of the matrix as a Regional Presidents and Global Process Leaders.
2. Performance management plans: To improve alignment, Wagoner wrote the Performance Management Plans (PMPs) by hand for each individuals ASB member, who then had a week to respond.
3. Meeting groundrules.
− ASB Operating Mechanics
ASB met monthly for two days of the month. Between two meetings, there were weekly telephone conferences. Besides, all regional strategy board met prior to the ASB meeting in preparation.
1. Pre-meeting preparation: Collected the agenda candidates and voted before the ASB meeting to select focused agenda.
2. Meeting format: The agenda was usually organized into seven categories. The single most important agenda item is the one-hour “roundtable” because people bring in those items that they think really matter, that others need to know, or when they need someone’s help.
3. Evolution over time.
− ASB Decision-Making Dynamics
1. Senior management interactions: In the view of some members, the ASB was largely rubber stamp. Others saw the ASB as an efficient mechanism for speedy decision making.
2. The CEO rule: In some members’ view, Wagoner was an active participant and ensured there was healthy debated. Others saw Wagoner using the ASB primarily as a sounding board as his own decision-making. Wagoner himself admitted that his role often changed, but he was not concerned about the diverse roles he played in the process. He mentioned, “I like having flexibility, which makes the organization better by putting pressure on it….In the end we have to think.”
The Future of GM’s Basketweave Structure
In spite of substantial progress, GM had continued to wrestle with the challenge of maintaining the right balance between local interest and the need for the centralized coordination to ensure economics of scope and scale.
− Challenges still faced
1. Unlike
2. Regionally base product development groups and programs had continued to lead to duplication.
3. Sharing among the regions was not happening naturally.
− Action: Changing the responsibility for the product development and engineering budgets. GM would centralize the responsibility in the Product Development and Planning/R&D functions.
− Concerns of Wagoner:
”Are we ready to manage the complexities of holding Region Presidents accountable for business results when they are no longer autonomous business unit, without their own product portfolio or product development/engineering staffs?”
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